Volume 52, Issue 2: Summer 2018

Parasites in paradise: behind the capitalist curtain

  • Secrecy World: Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite

    Jake Dernstein

    Henry Holt & Co., 2017

Every year, sometimes several times a year, the media are abuzz with stories about how the truly wealthy and large corporations do not pay any, or very little, tax on huge incomes and profits. The envy and resentment these stories spawn have been given a boost by a series of journalistic exposes, the Luxembourg Leaks, the Panama Papers and the Paradise Papers.

The writer of this book is a journalist who, as a member of the International Consortium of Investigative Journalists (ICIJ), did yeoman work uncovering the Panama Papers. The most intriguing part of the book is the telling of the trials and tribulations of journalists from all over the world who collaborated to put disparate pieces of evidence together. They had to find outlets and overcome mainstream publishers who were reluctant to publish and, when persuaded to publish, to do so at times agreed-to by competitors who were given the same access to the stories. They had to locate and protect sources, some of whom had discovered vital materials in rather unconventional, perhaps even criminal, ways. They had to develop technologies to make sense of vast amounts of data contained in fragmented and encrypted files. It was a huge, and hugely commendable, enterprise.

At the heart of the journalists’ work is the same anger and disgust the general public feels about the unfairness of it all. They want this avoidance of taxes to stop. They want the rich and mighty corporations to contribute to the general good, to be good citizens. To impress us with need to do something, the writer, being a journalist, has written a book replete with stories of avarice and cunning. It relies a great deal on personalizing the stories of skulduggery that offend Jake Bernstein and that he expects will be repellent to all readers. He picks on the easily-derided, the shifty and dislikable to persuade readers and legislators to do something, anything.

At the centre of the tale is the fact that professional functionaries, in particular, the legal firm of Mossack Fonseca (referred-to as Mossfon) use legal instruments available to them to help people we should dislike to enjoy the good life. There are pen portraits of these lawyers, their parents, their looks, their early lives, their cleverness, their bonhomie and steeliness, etc. — and of the occasional heroes (mildly successful government investigators) and, of course, of the colourful characters and families that use these lawyers and their instruments to stymie our expectations and policies. There is a parade of nefarious characters who use shell companies and tax havens. The book often resorts to descriptors that imply derision of locations and ethnic origins that are not American or European. There is the arms-dealing Saudi Kashoggi whose obscene wealth and whose ostentatious yacht was bought by Trump, the unprincipled Noriega (a man who became a U.S. enemy eventually), whose policies allowed drug cartel money to be laundered in Panama; Nigerian and Argentinian politicians whose blatant corrupt dealings required them to find places to hide their ill-gotten monies. Mexican drug lords, like Quinterno, Chinese princelings, Jewish diamond merchants … all feature (even though some of them used tax havens to thwart their families and may not have done anything manifestly unlawful). Vladimir Putin, who allegedly (based on U.S. secret agency claims) made his fortune by favouring unsavoury oligarchs, is the focus of much venom. It makes for titillating reading. And the conclusion we are asked to draw is that if the tax havens can be used by the likes of these never-do-wells, they should not be available to anyone.

At various points, Bernstein does indicate that he understands the need to be somewhat more probing but neither he nor the ICIJ and their media soap boxes take on this task.

While the stories about venal and sleazy criminals dot the narrative, the author points out, on page 4, that the biggest abusers of the secrecy world are multinational corporations. On page 61 he notes that more than half of the world’s wealth is stashed offshore, that is, keeping it away from the publics that enabled them to make profits. Actually, then, it is so-called respectable capitalists who set up these schemes and criminals are just collateral and opportunistic beneficiaries. As Mossman Fonseca said in defending their practices of hiding monies, we “were simply behaving the way accountants, bankers, lawyers, and trust companies operate every day.” (p. 4)

Basically, capitalists exploit the needs of governments. At one end are those minnow countries that have no income sources of their own: Nuie, Nauru, British Virgin Islands, Cayman Bermuda, Turks and Caicos, Belize, Cyprus, Seychelles Cook Islands, Channel Islands, Panama. Simply by permitting companies to be formed quickly, cheaply and without requiring the creators to reveal their identity, capitalists and their corporations can park their money in banks sworn to secrecy and have the offshore companies deploy it as they direct. And the minnow states profit. At the other end, we find the nation states that promote the doing of capitalist business by means of corporations. They have been created, at capital’s behest, to facilitate the accumulation of resources and allow the shifting of risks from legally separate real and benefitting persons to the legally established corporations they form. State-legitimated corporations are instruments that promote personal irresponsibility. Off-shore tax havens that utilize the corporate form are a novel and useful, but not essential, addition to the capitalists’ tool kit.

Bernstein acknowledges that the path for the Mossfons of the world was laid down in Delaware, New Jersey and Arkansas. To make money, these jurisdictions (much like to-day’s Niue and Nauru and Panama) enacted legislation to make it easier for capitalists to form corporations behind which they could hide and safeguard the profits of anti-social accumulation. As a logical extension, the use of tax havens falls, in the majority of cases, within the boundaries of what have become ordinary, normal practices. Thus, when confronted by the evidence of massive tax avoidance (in U.S. tax havens as well as in island paradises), Barack Obama said: “It may not be illegal, but it is immoral.”

This is why, of course, the book concentrates on criminals: they are using the same technique after openly acting illegally. This, it is instinctively hoped, will force the law-makers to do something about daily corporate immoral conduct which our capitalist laws do not deem illegal. There are some signs this may happen. The English government is proposing laws that will force its former colonies (such as the British Virgin Islands) to demand more details when setting up corporations for the secretive wealth owners, both criminals and (non-criminal?) capitalists. This could discourage some from using these immoral techniques of avoidance. The U.S. has put political and economic pressure on some of the tax havens, such as Niue and Cyprus favoured by Russians.

In this sense, Bernstein and his praiseworthy comrades at ICIJ are having an impact. But, these kinds of changes will not impede capitalists much — they, their bankers, accountants and future Mossfons will find new ways to enrich the self-styled masters of the universe at our expense. The journalists want to make a rotten system work better. But, as Simon Bolivar said: “Political gangrene cannot be cured with palliatives.”

Harry Glasbeek is Professor Emeritus, Osgoode Hall Law School, York University. His latest book is Class Privilege: How Law Shelters Shareholders and Coddles Capitalists. His Capitalism: A Crime Story was published in spring 2018, also by Between the Lines.